CoreLogic NZ's annual Best of the Best Report confirmed 2022 was a buyer's market, with the negative outlook rising in line with mortgage interest rates.
CoreLogic chief property economist Kelvin Davidson said the introduction of tighter lending regulations, loan-to-value ratio rules, higher mortgage rates and more listings combined to tilt the balance of power away from sellers.
"Our outlook proved to be correct, but we, and many others, underestimated how deep the downturn in sales volumes would become and also how far house prices would fall," Davidson said.
"It's been striking just how weak sales activity has been this year, as buyers have taken their time to decide about purchases and vendors have also been able to 'sit tight' too - assisted by low unemployment."
For the 2022 calendar year, total sales volumes were estimated to be about 67,000, which was the lowest since 2010, and the third lowest figure in the past three decades, with next year's volumes expected to be little changed.
Davidson said national average values were already down about 10 percent from the peak, with the potential for another 10 percent drop in 2023.
"For context, the GFC [Global Financial Crisis] saw a final peak to trough fall of 10 percent," he said.
"If this does eventuate, it's important to remember prices will still be 15-to-20 percent above pre-Covid levels."
While values were likely to drop throughout the country, the drop was unlikely to be evenly spread, as areas which experienced the fastest and largest increases were more likely to be hit the hardest.
"Previously buoyant areas such as Porirua, Upper Hutt, and Lower Hutt have become some of the weakest markets in New Zealand, while in contrast, many parts of Canterbury - including Christchurch, Ashburton, and Timaru - have fared a bit better."
The strength of the labour market would help limit the potential for negative equity and mortgagee sales over the next year, he said.
"Most importantly, for now however, there doesn't seem to be a major risk of outright, large-scale job losses," he said, although mortgage interest rates rising above 7 percent would be a challenge for many.
Despite the downturn, first-home buyers had increased their market share to between 24 and 25 percent, from about 20 percent in early 2022
Mortgaged multiple property owners had been less active, but those with cash had increased their market share.
Davidson said the Reserve Bank had not pushed as hard as expected on lending regulations, such as formal caps on debt-to-income ratios.
The general outlook for the housing market remained weak in light of the Reserve Bank's predictions of an economic recession in the middle of next year, with no easing of inflation until the second half of 2023, he said.
"With gross domestic product figures soft and mortgage rates higher, it's hard to see property sales volumes climbing too much in 2023."
RNZ
